Devoted to understanding the basics and fundamentals of investing

A new study I am going to start  here at GrowYourFunds is a periodic valuation study of two popular stocks. I will take the stocks, show several key valuation metrics of the stock and then have some comments on the valuation of those stocks versus each other and versus others inside their own industry. Remember, these stocks will not necessarily be direct competitors, and may not be linked in any way, these studies will be simply to help you the investor decide which of the popular stocks is a better value.       

The first valuation study will be Cisco Systems, Inc. (NASDAQ: CSCO) vs Microsoft Corporation (NASDAQ: MSFT). These two are both high tech darlings that have fallen out of favor over the years, and at least to some extent have gained back some of that darling reputation.

                            CSCO                 MSFT

Current yr. P/E=   26.77                 20.18

Forward P/E=       18.46                 17.77

PEG Ratio=           1.30                  1.45

Price/Sales=         5.46                  5.37

Price/Book=          6.04                  8.84

Cash Per Share=   3.67                  2.25

These two tech companies are actually quite different in their valuations, though some of the numbers appear similar. MSFT trades at a discount on the P/E basis, but when growth is factored in CSCO looks to be the cheaper stock. CSCO is cheaper on a price/book value basis, and the two are virtually equal on a price/sales valuation basis. Both companies have a large amount of cash on hand per outstanding share, with CSCO having a very large amount for a high growth tech company.

Which stock looks cheaper at this point? On a relative basis I would say CSCO is the cheaper stock right now. The company is a growing at a sustained high rate, and is trading at a reasonable valuation versus its industry. The industry average PEG is 1.52, and CSCO is just 1.30. CSCO has a strong balance sheet with good cash flow and relatively little debt. Neither of these stocks valuations look absurd by any stretch, so investors in these shares should feel pretty comfortable if the companies continue to perform well.

If you would like to subscribe to the feed for this site and receive daily alerts of new posts please click here.